Hints For Final Exam

1. Sales Commissions do not affect the quality of receivables.
2. Increased variable costs while decreasing fixed costs does not increase risk.
3. Return on assets can be used to assess operating profitability.
4. To increase financial leverage one can repurchase stock and issue more dividends.
5. Earnings to fixed charges ratio excludes extraordinary gains and losses from the numerator.
6. Prepaid expenses does not result in expected cash inflows.
7. Low price of product does not cause low accounts receivables turnover.
8. Highest return on equity determines which company is most profitable and is the best measure of profitability.
9. Financial leverage measures a company's solvency and sales to assets ratio does not.
10. Debt covenants do not affect the calculation of leverage ratios.
11. Deferred tax liability can be treated as equity.
12. Cash flow adequacy ratio of one indicates coverage of cash needs without external financing.
13. Investing inflow of cash is interest income.
14. Capitalizing costs that were previously expensed would affect cash flow from operations.
15. An increase in accounts payables is considered a source of cash.
16. An increase in working capital is considered a use of cash.
17. LIFO vs FIFO will affect both net income and cash flow from operations.
18. Capital leases in cash flow statements reported as partly operating cash and partly as financing cash.
19. ROE is greater than ROA if ROA is greater than after-tax cost of debt.
20. Purchases divided by accounts payable provides management of working capital and so does COGS divided by inventory.
21. ROE is a not a post interest measure, but ROA is.
22. Under GAAP all assets are marked to market each accounting period.
23. Return on equity can be disaggregated into profit margin, asset turnover and leverage.
24. Increase in inventory turnover can cause an increase